Author: Site Staff

HR consulting firm Mercer notes that defined-benefit pension plan sponsors are starting 2010 with “renewed optimism,” as the economy and capital markets have rebounded, bringing pension plans’ funded positions along with them. Mercer says that sponsors should “temper this optimism with a drop of caution, because many issues that arose during the economic downturn still exist.” Mercer has identified 10 key issues pension plan sponsors should examine for opportunities to improve their plans’ financial and regulatory footing:

1. Reduce pension risk and required contributions. Many pension sponsors have already made several key decisions regarding the methods used to calculate the funding of their plans, but now there is a one-time opportunity to make another election. They can adopt segmented rates and lower the 2010 minimum required contribution and reduce long-range pension risk.

    2. Avoid surprise contributions. Changes to plan provisions or negotiated benefits may require an immediate cash outlay by the pension sponsor. Therefore, any impending changes should be carefully analyzed to determine their potential effect on the funding requirements and the possible benefit restrictions if contributions are not made in a timely way.

3. Educate fiduciaries about pension-plan risk. Many plan sponsors who thought they understood pension-plan risk have realized that they did not. Sponsors should regularly review multiyear forecasts of the plan’s funded status against varying economic scenarios so that they have a solid understanding of potential financial commitment they may face in the distant or not-so-distant future.

4. Understand benefit-restriction triggers and funding certifications. Amendments to plan provisions or special events, such as a plant shutdown, can trigger immediate benefit restrictions. They may also require immediate updates to funded-status certifications to avoid potential plan disqualification. Pension sponsors should review their governance structure to ensure effective coordination with all parties involved in such transactions or events, as well as the actuary.

5. Anticipate new Pension Benefit Guaranty Corp. reporting requirements. The PBGC is likely to add new “reportable events” requirements in 2010 and has also proposed eliminating most automatic waivers and filing extensions. These changes will increase sponsors’ reporting burdens and may have secondary effects, such as triggering disclosures under debt covenants.

6. Consider delegating investment discretion. Effectively managing a pension plan takes resources, time and specialized investment expertise. Many sponsors cannot adequately staff to handle the increasingly complex plans, making it difficult to properly react to capital market changes and opportunities. Sponsors should consider whether delegating investment decisions to a qualified fiduciary may better meet both sponsor and plan objectives.

7. Revisit the investment manager structure. Given the upheaval in financial markets and an unclear future, take an initial step and revisit the entire investment manager structure. Next, review how each asset class is structured and, finally, re-evaluate the fees charged by managers.

8. Review and verify risk tolerance. Increased market volatility has certainly shed light on the riskiness of certain investment products. This is a good time to reassess attitudes about risk, especially within alternative investments and other derivative-based products. Does taking on increased risk meet the overall objectives of the plan?

9. Set guidelines to avoid conflicts of interest. U.S. Department of Labor and Internal Revenue Service auditors are looking for potential conflicts of interest with anyone who may influence investment decisions. Plan sponsors should set formal guidelines for this process, including standards regarding gifts from current or potential vendors.

10. Take steps to prevent fiduciary pitfalls. When audits or lawsuits occur, the DOL, the Securities and Exchange Commission, external auditors and courts focus on the fiduciary decision-making process, not just the outcomes. Sponsors should review their own structures, including the roles and responsibilities of the benefits committee, to verify proper accountability, oversight and overall compliance.

Mercer has also compiled a companion list of resolutions for defined-contribution plans.

Source: Mercer

In most every respect, employers of all sizes are less happy than in previous years with the services provided by their health insurers, according to a PricewaterhouseCoopers report published Tuesday, January 19.

Overall, 59 percent of employers said they were satisfied with the job performed by their health insurer in 2009, down from 64 percent in 2008. And the smaller the firm, the less satisfied they were likely to be, though the level of satisfaction has remained steady at 52 percent. Employers are particularly dissatisfied with services intended to lower cost and improve employee health.

“I think in this economic time, [employers] are under significant economic pressure with their health benefits,” said Kathryn Stein, managing director at PricewaterhouseCoopers’ health industries practice in Chicago and an advisor to the team that authored the report. “And they are looking to insurers to step up and help them deal with cost issues, access issues and affordability—all the things they need to do to manage their health benefits.”

Health care costs continue to widely outpace inflation. And employers believe that insurers are not doing enough to keep those costs under control, forcing employers to pass them on to employees. Despite the recession—or perhaps because of it—60 percent of employers in the study said they would increase health care cost-sharing for employees. Increasing the relative burden of health care costs among employees was the most prevalent cost-control strategy used by the businesses that were surveyed.

More employers want health plan members to have access to better personal health technology tools, but as the importance of such mechanisms grows in the eyes of employers, the less insurers are doing to adequately provide the services. Satisfaction with personal health records and online comparison tools actually dropped 10 percentage points among large employers since 2008, the report states.

The report also notes that insurers have not done enough to provide employers with “meaningful and higher-quality data to help them control costs and keep their employees healthy. Employers would like insurers to take an active role in waste reduction and are looking for consistency and transparency in their health benefit plans.”

Less than 25 percent of employers are satisfied with their insurers’ ability to prepare risk profiles for their plan members.

Wellness and disease management programs also are problematic areas. Insurers have successfully marketed these programs, with more employers offering them than in previous years in the belief that they are critical or important to their business, according to the report.

However, employers are less satisfied with the programs, citing declining participation rates among employees, in part because the impact of incentives such as cash and other rewards appears to be wearing off.

The report says more workers are completing basic health risk assessments without the need for incentives and that more employers are focusing on rewarding health behavior rather than participation in an employer wellness program.

Disease management presents a trickier problem, since employees enrolled in those programs tend to have more complex, chronic illnesses. Managing them will require insurers to better coordinate the care patients receive. 

Stein, who consults on health care issues for large employers, said companies are looking for insurers to help them manage their health care costs, especially through wellness and disease management programs, but that large insurers are less adept at changing quickly and offering new innovations.

The report, though, could galvanize insurers to do more for their customers, she said.

“I think there is pressure for them to improve,” Stein said of insurers. “It’s primarily the pressure they are feeling from their own customers. Most changes are made in the insurer world because their employer customers are demanding it.”

—Jeremy Smerd 

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